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Learn about income tax, stocks, mutual funds, debt obligations, and money management strategies. Explore a real-world scenario and financial literacy definitions to improve your financial situation and plan for the future.
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Income tax: taxes owed to the government (usually deducted from your pay) • Stock: a unit of ownership in a company. • Bond: a debt obligation of corporations or state or local governments. • Mutual Fund: a pooling of money from a large number of investors to buy a large selection of securities.
Real World Scenario You are single and net $2000 a month from your job. You have the following monthly bills: $900 rent, $250 new car payment, $200 school loans, and $100 total for 2 credit card bills. How much will you have left over? On a scale of 1(worse)-10(best) how would you rate this financial situation? What are some things you can do to get out of this situation?
Copy the following definitions down: • Consumer: A person or organization that uses a product or service. • Credit: The granting of a loan and the creation of debt; any form of deferred payment. • Economy: A system by which goods and services are produced and distributed.
Interest: A fee paid by a borrower to the lender for the use of borrowed money; typically interest is calculated as a percentage of the principal (original loan amount). • Loan: A debt evidenced by a “note,” which specifies the following: principalamount, interest rate, and date of repayment.
Debt: An obligation of repayment owed by one party (the debtor/borrower) to a second party (the creditor/lender); in most cases this includes repayment of the original loan amount plus interest. • Financial literacy: The knowledge and skill set necessary to be an informed consumer and manage finances effectively.
Personal finance: All of the decisions and activities of an individual or a family regarding their money, including spending, saving, budgeting ect. • Principal: an amount of money that is lent, borrowed, or invested.
Assets- anything that you own outright. Examples: cash, jewelry, stocks, etc.. • Liabilities: anything that is a debt that you are making payments on. Examples: car payment, school loans, etc.. • Net worth- Assets minusyour liabilities= net worth.
Budget: a spending and saving plan based on your expected income and expenses. • Financial Planning: a set of goals for spending, saving, and investing the money you receive.
Financial Planning Deal • Here is a once in a lifetime deal! You get 2 options in this deal. #1- I am offering you a million dollars cash right now. #2- Or I will give you a penny on day 1 and then double the penny each day for 30 days. WHICH WOULD YOU TAKE?
So what is the point? Financial Freedom is a marathon not a sprint. • 1 million dollars vs. 10 million dollars
Why is Personal Finance important to you? The average college student graduates with the following amount of debt: • Public college- $ 39,000 • Private college- $52,000 How does this alter the lifestyle of the new college graduate?
The average person has $7,300 dollars in credit card debt. Which means the average family (2 incomes) has almost $15,000 in credit card debt. What other debts will these same people have? • Mortgage • Car
Too many people are in the poor house today- why? • Broke is temporary- poor is a state of mind. • Broke is: I don’t have any money but I am not going to always be like this. • Poor is: you keep making poor decisions as it relates to money/keeping money/having money.
Sources of banking/credit • Commercial Banks- most banks are large, for-profit banks. Example- 1st Tennessee, Bank of America. • Credit Unions: non-profit banks that exist for the good of the customer. • Savings & Loans- little to no profit banking institutions that look to help the customer out as much as possible.
Cash Advance centers- these are institutions that will give you a loan or cash your check for a large fee. • Pawn Shops- stores that will give you a loan or buy your possessions. • Electronic Banks- this is new. There is no building just electronic transactions (not insured by FDIC)
Standard Banking usage terminology: • Checking account- a place to deposit your money and an account you can “write” checks against. • Deposit- money that is added to the account. • Endorsement- signing your name to the back of a check.
Payee- the person to whom the check is written. • Outstanding check- a check that has not cleared the banking institution as of yet. • Bank reconciliation- the process of making the bank statement and your checkbook register match.
Checking Account • A checking account is a type of bank account that offers easy access to deposited funds. • A checking account typically allows for unlimited withdrawals and deposits- a good decision for everyday spending. • In exchange for flexibility the checking account pays a low interest rate.
Savings Account • A savings account differs from a checking account as the depositor is not trying to use his/her money daily. • A savings account pays a higher rate of interest but typically it is more difficult to access your money. • Besides a savings account other options for storing money: A CD (certificate of deposit or Money market account.
A Certificate of Deposit- is savings account with a higher rate of interest but charges a penalty for withdraws. • A Money Market account- is a savings account with check writing privileges. There is no penalty for withdrawing money but it takes more money to open a money market account.
Types of checking accounts • Free Checking: only about 38% are actually free. What this means is there is no monthly maintenance fee or minimum balance requirement. • Interest bearing checking: earn interest on your balance and still are able to write checks against it. (large minimum balance requirements)
Premium checking: offers benefits like interest payment, free money orders, and notary services (high minimum balance) • Lifeline: streamlined accounts for those who are low income customers. Low minimum balances and no monthly fees. • Second chance checking: for those turned down for a checking account due to past banking mistakes or bad credit.
Joint checking: a checking account shared by 2 or more people. (relatives or business) • Trust checking: A trustee controls the account assets for the benefit of another person or group. • Student checking: standard checking but with lower minimum balances and lower fees.
Various ways to access your money from your checking account: 1. ATM/DEBT card: function just like a credit card but the money comes straight out of your checking account.
Cashier’s check: it is used to guarantee that funds are available for payment when using a credit or debit card is not practical (house, car, or an appliance). The funds are moved from your account to the banks and then bank then writes a check to the payee.
Money order: it is a certificate issued by a government or banking institution. Functions like a check. They can be sold at the Post Office, grocery stores, or gas stations. (can even be sent internationally). They are purchased for a fee.
Check: it functions the same as cash. A check is written by the payer to a particular person or company (payee).
Making a deposit into your account is fairly simple. By filling out the deposit slip the customer can deposit funds and get cash from the checking account.
Making a deposit into your account: • You will need to list each individual check that you want to deposit into your account as well as any cash. • Deposit #1- deposit the following checks: $230.00, $186.00, and $191.00. • Deposit #2- deposit the following: but you also want to get 50.00 cash back: $325.00 in cash, checks-$110.00, $65.00, $50.00, and $135.00. • Deposit #3- $10,000.00, $8,534.63, $7,521.93 and you want to deposit $5,600 in cash.
Wants vs Needs Wants Needs Needs: something you have to survive. • Wants: are desires or something you would like.
What are some things that today would almost be necessities to be successful? • Reliable transportation • Utilities • Telephone • Personal care expenses • Child care expenses • Healthcare • Education
Financial Planning Financial Planning helps people make decisions when accomplishing their goals. This includes things like: • Managing decisions related to education • Earning income • Spending income • Saving part of your income
Goal Setting Be SMART: • Specific- I want to save $300 dollars. • Measurable-where are you in 6 months? • Attainable- be reasonable. • Realistic- within your grasp. • Time Bound- important!
Factors that will influence your goals • Family Responsibilities • Individual values • Economic conditions * Unemployment * Unplanned inflation
Scarcity- unlimited wants vs. limited resources. • Prioritizing your bills- triage factor. • Know your money personality.
Goals Short-Term Goals: Less than 1 year Intermediate Goals: One to Five years Long Term Goals: More than 5 years
So, what is the difference between a budget and a financial plan? Budget: an estimate of income and spending for a set time. (short term) Financial Plan: a series of steps/goals used to accomplish a goal or manage a set of circumstances. (long term)
Money, Income, and wealth are NOT the same! This course is not just about money or how much you make. Accumulation, preservation, and distribution of your wealth is your responsibility. Basic Principles of being your own CFO (Chief Financial Officer)
Personal Finance is not just about the tools but rather it is about the behavior. Making the tools, techniques and your money work for you. It sounds easy but it takes a lot of DISCIPLINE!!!!!
Personal Finance is a full time job! Congratulations you have a job that you will keep until you die!
Saving Money in today’s society is not normal • 70% of all Americans live paycheck to pay check. • People are too quick to use a credit card in the modern world. • Credit Card companies market their cards to people:
